Most important event in eurozone in early 2013
The Italian election on February 24-25th is the most important event in the euro zone countries in early 2013. It is potentially the most important election in Italy since 1994 since it gives the country the chance to move on from the bipolar political system–with one pole led by Silvio Berlusconi and the left around the former communists–that in 1994 replaced system which had from 1948 until 1992 seen Italy governed by a coalition in which the Christian Democrats were always the largest party. The bipolar system did provide the Italian electorate which a choice of governments which they had effectively been previously denied but suffered from the fact that the right-of-centre pole was led by man whose series of convictions (subject to appeal) for tax evasion, false accounting and bribery, ongoing conflict with much of the judiciary and use of parliament to change the law to further his own interests greatly weakened the principle of the rule of law in which all are equal that is a key principle of a constitutional democracy. The left wing pole was also something of a disappointment since although the former communists allowed themselves for much of the period since 1994 to be led by a former Christian Democrat economics professor, Romano Prodi, its early reforming motivation was weakened by the need to form an alliance with the far left which blocked many reforms as well as by factional politics within the former communist party (now the Partito Democratico, PD).
The hope that Berlusconi would keep to an earlier declaration that he would not return to frontline politics has been disappointed. He presided over a deterioration of prospects for Italy’s finances to the point where he had to resign in November 2011 because investors had lost faith in the ability of Italy under his leadership to put its house in order. Since then he has swung between supporting the replacement government of Mario Monti for implementing measures necessary to restore confidence of investors and condemning the same measures as a capitulation to German demands. Nevertheless, there is according to recent polls nearly 30% of the electorate still sufficiently gullible to vote for Berlusconi’s Partito della Liberta (PdL) and parties associated with it including the Lega Nord, itself hit by a major corruption scandal. This represents a comeback for Berlusconi.
Even so, there is a chance that the election will bring about a significant renewal. Pier Luigi Bersani, the leader of the PD, which is likely to be the leading party in the next government, was subjected to an open process of re-election through a primary election of the PD and associated parties in November following televised debates in which he fought off a strong challenge by the much younger and radically reformist mayor of Florence, Matteo Renzi. Bersani had been a consistent supporter of the Monti government until its resignation in December 2012 and is open minded about reforms although if he were willing to propose reforms that affected the interests of trade unions he would be opposed by left-wingers in the PD and Nichi Vendola. Vendola is a successful president of the southern Apulia region, whose party, Sinistra Ecologia Liberta (SEL), which is allied with the PD, has strongly opposed labour market reform. Nevertheless the PD is taking measures to renew itself including having also run primary elections for many of its parliamentary candidates (albeit with a low turnout) and welcoming in outside personalities such as the anti-Mafia prosecutor Pietro Grassi. It also tried to bring in the well known political and social commentator, Beppe Servignini, as a leader candidate, although he has turned down the offer.
Monti enters political fray
The second potentially important development is the entry into politics at the beginning of this year of the prime minister from November 2011 to December 2012 and current caretaker, Mario Monti, hitherto without political allegiance, as leader of a centrist grouping based on two existing parties and a new movement promoted by business leaders. At present polls suggest that this grouping would win about 15% of votes. Its challenge is to increase this proportion during the campaign by appealing to voters who are undecided or inclined to vote for the Berlusconi camp or Movimento Cinque Stelle (Five Star Movement) led by the comedian Beppe Grillo, who wants to take Italy out of the euro. Votes from the PD would inevitably be from its reformist wing and would be a poor reward for the support given by the PD to the Monti government and its unpopular austerity measures.
Mr Monti’s decision to enter the political fray–which took time and cannot have been easy–has drawbacks such as putting him in competition with Bersani who had supported him in government. The decision is a brave one. It is too early to say whether the risk will be rewarded, but it is a risk worth taking. In the Italian context Monti had a degree of legitimacy through parliamentary support for 12 months from November 2011 but only for a limited time. After the election, if he can muster a respectable vote he will have continued legitimacy as an influential person although he is very unlikely to again be prime minister and may well not be in government.
The president of the republic, Giorgio Napolitano, strongly urged the political parties to reform the existing voting system but they failed to do so. Under the system, if the PD and allies receive the support indicated in current polls they should win an overall majority in the Chamber of Deputies because the winning party is given a bonus. However, in the Senate, the bonus applies on a regional basis and therefore the PD and electoral allies will probably not have an overall majority. Such an outturn might seem to give Monti’s centrists some leverage but that leverage would have little chance of enabling them to push through any reforms that are opposed by the left. Nevertheless they could at least try to provide a constructive and realistic critique, which is probably not going to come from the PdL or the Five Star Movement. Beppe Grillo. Assuming that, as opinion polls now suggest, the PD and electoral allies emerge from the election with more than twice the representation of the centrists, there is risk that a coalition government between the PD would be too weighted to the PD group to allow the participation of the centrists to be sufficiently influential. Although Bersani has said that he would be open to an arrangement with Monti, unless Bersani was able to give a Monti a powerful role in such an arrangement, he would be likely to be able to make a better contribution as a constructive and responsible opposition.
Priorities for the next government: opportunities for the young and legal reform
Apart from the painstaking business of continuing to put Italy’s fiscal affairs in order, there should be two priorities for the next government. The first should be to increase opportunities for young people through education reforms and trying to increase job opportunities. There is however very unlikely to be the necessary political backing for any further overarching labour market legislation following that of the Monti government in June 2012 (see Can labour market reform boost plight of young people without jobs, July 31st, 2012 http://insighteu.com/?cat=7 ). So the challenge will be to try to make the new law work and put pressure on unions and employers to work together rather than antagonistically. The PD economics spokesperson, Stafano Fassina, has also indicated that a left-of-centre government would pursue reforms to increase competition in professions and trades such as law and pharmacies which could reduce the present power of incumbents to make new providers’ entry into the markets very difficult.
A second key priority is reform of the legal system. The slowness of the legal system, including excessive delays during appeals, means that it is often ineffective. An effective legal system is an essential part of a strategy to improve Italy’s currently low ranked business environment and more broadly is a key part of a well-funcitioning democracy.